If two adjacent flats are bought from different people through two agreements and then converted into a single unit with a common kitchen, then the owner is exempt from paying capital gains tax, the Bombay high court has said.

The HC upheld the Income Tax Appellate Tribunal (ITAT) order that went in favour of a Juhu resident, Devdas Naik. In 2007-08, he sold a bungalow for Rs 3 crore and bought three flats —one in his name, the second one jointly owned by him and his wife and the third in his wife's name.

Naik claimed exemption for two of the flats, which are located adjacent to each other, saying they were used as one contiguous unit. He also said the size of each flat was around 500 sq ft and so, they had to be combined to utilize them as one unit. The flats involved were the one registered in his name and the one jointly held by his wife.

But the income tax department said Naik was not eligible for the exemption as they considered one flat as a residential unit and not two flats, even if they were located side-by-side. Refuting the argument, the HC said that the general as well as the internal layout plans of the flats indicated that there was only one common kitchen; the apartments were built in such a way that the adjacent units could be combined into one. (Times of India)